Maryland Senate votes to tax the rich

Annie Linskey and Michael Dresser, The Baltimore Sun

The state Senate voted Thursday to significantly raise taxes on Marylanders earning half a million dollars or more — prompting complaints that liberals were bent on launching class warfare in the state.

The Senate's vote to adopt what is being dubbed a "millionaire's tax" came after some liberal-leaning senators said they would refuse to support a smaller, across-the-board increase in income taxes unless the wealthy took a special hit. The chamber was considering a plan to raise taxes on most Maryland taxpayers by up to a quarter of a percentage point — a proposal that eventually passed by a vote of 26-20.

The plan to tax top earners — those earning more than $500,000 a year — at a higher rate would only affect 15,000 households, who would pay at least $2,752 more for joint filers.

The idea mirrors a national debate that has pitted President Barack Obama against congressional Republicans in a standoff over the best way to reduce the federal deficit — and sparked an equally heated debate in the Maryland Senate. The proposal also resurrects a higher tax bracket in Maryland that led to years of concern over whether it drove millionaires to move out of state before it expired two years ago.

"You are taking a certain class and you are singling them out. It is not right and it is not fair," said Sen. Robert A. Zirkin, a Baltimore County Democrat.

Republican Sen. David Brinkley of Frederick said "Karl Marx would be proud" of the plan, though he later apologized for the remark when a colleague took offense.

Sen. Paul Pinsky, a liberal Democrat from Prince George's County, defended the measure. "Is it wrong to ask people who make more to pay more?" he asked. "Is it radical? Not at all."

Senate President Thomas V. Mike Miller said the overall tax plan — needed to help close the state's $1 billion budget shortfall — would have failed without the millionaire's tax.

"Quite frankly, I wouldn't have had the votes to pass it without that," said Miller, a Calvert County Democrat.

The tax vote came as the Senate approved its version of the budget. The measure moves next to the House of Delegates, which has signaled openness to asking the rich to pay more — but not necessarily using the same mechanism favored by the Senate.

The Senate's budget includes about $500 million in spending cuts, shifts $240 million in teacher pension costs to the counties over four years, and gives the state the authority to seize local income tax collections if counties don't adequately fund their schools.

Miller said he was proud that the chamber developed its own approach to the state's $35 billion operating budget, and did so without the "guidance" of Gov. Martin O'Malley. The plan differs significantly from the one the Democratic governor suggested in January.

The Senate also approved Thursday a 70 percent tax increase on flavored cigars and new taxes on some online purchases.

The most far-reaching tax change would increase the state income tax rate on almost every Marylander by 0.15 to 0.25 percent, adding about $415 million to the state's coffers next year. A family of four making $90,000 would pay $44 a year more under the new plan. A family making $180,000 would pay $292 more.

The idea was based on a proposal by Montgomery County Sen. Roger Manno, a Democrat. "This bill had broad support because it was fair," he said during debate. "It averts difficult cuts."

The "millionaire's tax" was added to his proposal late Wednesday evening and was so hastily drawn that the Department of Legislative Services did not have figures for how those taxpayers would be affected.

The change would increase the tax rate for anyone making over $500,000 — roughly 15,000 households, according to the comptroller's office — from the current 5.5 percent to 5.75 percent. And, unlike the way Maryland usually assesses taxes, the new 5.75 percent rate would apply to every penny, not just the earnings over $500,000.

An analysis by The Baltimore Sun found that a single filer making more than $500,000 would pay $2,482 in additional taxes. Joint filers in that tax bracket would pay at least $2,752 more.

The additional tax on those earning more than $500,000 would raise about $30 million — money not needed to balance the budget in the Senate plan. The bill directs the money to "aging schools" and municipalities.

Last fall, Obama proposed creation of a new minimum tax bracket for people who make more than $1 million a year, arguing that they should pay at least the same rate as middle-class taxpayers.

According to the administration, only 0.3 percent of taxpayers would be affected. Republicans on Capitol Hill rejected the idea out of hand and demanded deeper spending cuts. House Budget Committee Chairman Paul Ryan, a Wisconsin Republican, labeled Obama's proposed tax "class warfare" and "rotten economics." It has not gone anywhere since then.

Nevertheless, polls show high levels of public support for higher taxes on the richest Americans, though even larger percentages favor spending cuts.

Obama has described his approach as "the Buffett rule," after financier Warren Buffett, who has decried a tax system that lets him pay at a lower rate than his secretary. Republicans have countered that Buffett is free to pay more taxes if he wants to but shouldn't demand that other wealthy individuals, who they say often own businesses and create jobs, pay a higher rate.

A perception that the richest Americans have benefited the most from economic policies adopted in recent decades, especially the tax cuts adopted under President George W. Bush, helped spawn the "Occupy Wall Street" movement that spread around the country last fall.

One of the main messages of the movement was that the economic system should do more to promote the interests of what protesters called the "99 percent" even if it meant higher taxation of the 1 percent of earners.

House Speaker Michael E. Busch said Thursday that his chamber's leaders are not considering the same type of millionaire's tax. Busch previously floated a more traditional approach of increasing the rate on income over a certain threshold.

The House will take up the budget next week. Differences between the two plans will have to be worked out in a conference committee and then approved again by both chambers.